Top Glove has submitted an application to be listed on The Stock Exchange of Hong Kong with the issuance of up to 1,495m new shares. This would raise up tp HKD 14.95bn (approximately RM7.8bn). Overall, we are neutral on the news. While this would open up Top Glove shares to be purchased by a larger investor base (and hopefully aid some degree of rerating), it would also dilute existing shareholders, resulting in lower dividend yield. We maintain BUY with unchanged TP of RM8.06.

NEWSBREAK

Top Glove have submitted an application to be listed on the main board of the Stock Exchange of Hong Kong (HKEX). Top Glove have proposed the issuance of up to 1,495m new shares (including 195m new shares, which may be issued under the over-allotment option) which would raise up to HKD14.95bn (or approximately RM7.8bn). This would represent up to 18.65% of the total issued Top Glove shares. Post-listing on HKEX, Top Glove will maintain its existing primary listing on Bursa Malaysia and secondary listing on Singapore Exchange Securities Trading Limited (SGX-ST). Top Glove shared that the funds will mainly be used to fund capacity expansion.

HLIB’s VIEW

We are overall neutral on this news. On one side of the coin, this listing will open Top Glove up to a larger investor base, given HKEX’s position as an established securities exchange. This may hopefully aid some degree of rerating in the stock. However on the flipside, the issuing of new shares would dilute existing shareholders effective shareholding of Top Glove, resulting in lower dividend yield. Based on our back of the envelope calculations, assuming issuance of 1,495m new shares, FY21 dividend yield would fall from 17.7% to 14.9% (still a very generous yield, nonetheless) based on 70% pay-out ratio of FY21 earnings.

Forecast. Our Forecasts Remain Unchanged.

Maintain BUY, TP: RM8.06. We maintain BUY with unchanged TP of RM8.06. We value Top Glove using with their pre-pandemic 5-year average PE multiple of 23x (CY15-19) tagged to sustainable earnings in a post-supernormal earnings environment (FY23) summed with free cash flows generated during the boom period (both discounted back to PV).

Source: Hong Leong Investment Bank Research - 8 Mar 2021